Experts’ opinion: Bitcoin halving will make it difficult for most miners to continue their activity

According to a group of experts, miners who have access to the most efficient mining equipment and cheap energy will probably be the only group that will be able to continue halving Bitcoin next year.

According to CoinDesk, the Bitcoin mining hashrate, a measure of computing power on the network, is likely to drop sharply a year from now when mining rewards are halved.

A halving is an event that roughly once every 4 years halves the reward for successfully mining each new block with the aim of reducing inflationary pressure on Bitcoin. The mining reward is currently 6.25 bitcoins equivalent to about $166,000, which will decrease to 3.125 bitcoins equivalent to $83,000 in April 2024 (Frudin 1403).

Wolfie Zhao, head of research at mining consultancy Blocksbridge, says:

Currently, public mining companies mine each bitcoin at a cost of around $10,000 to $15,000. After halving, these costs will be doubled and the miners’ break-even point will reach $20,000 to $30,000.

He added:

If the price of Bitcoin does not reach above 30,000, mining will be a loss for many of these companies.

JP Morgan, the US banking giant, has predicted that the cost of Bitcoin mining will likely increase to $40,000 after the halving.

As a result, with increasing mining costs and no significant growth in the price of Bitcoin, only efficient miners will survive and others will be forced to shut down.

Kerri Langlais, Chief Strategy Officer at Bitcoin mining company TeraWulf says:

The price paid for the energy and efficiency of the mining equipment will determine the winners and losers after halving.

Miners with higher costs to mine each bitcoin will have a harder time surviving after the halving. According to data compiled by Wolfie Zhao, Stronghold Digital Mining (SDIG), Cipher Mining (CIFR), and Riot Platforms (RIOT) have the lowest Bitcoin mining costs. According to this data, the cost of mining each bitcoin in the first quarter of 2023 for Stronghold was about $8,200, Cypher was about $8,600, and Rivet was about $10,400.

The importance of productivity

Bill Papanastasiou, an analyst at Stifel Investment Bank, wrote in a note in late May:

Due to the possible decrease in mining profit margins, miners have developed strategies to preserve capital, increase equipment productivity, and diversify their investment.

In general, the industry has focused on increasing the efficiency of mining machines and operations, as opposed to increasing the hash rate more and more like what happened during the 2021 bull market.

Ethan Vera, CEO of Luxor Technologies mining services company, also said about this:

Immediately after the halving, the hash rate of the network will decrease dramatically, but in the following months we will see its growth very slowly; Because efficient miners will replace older miners and this will change the game in favor of miners who have the lowest mining cost.

New investments

Papanastasiou noted:

Additionally, given the uncertainty surrounding mining economics next year, miners have become more cautious about investing in new equipment. Currently, the cost of investing in the digital currency mining industry is twice that of investing in the precious metals sector.

It may seem irrational to underinvest in this sector, especially given the continued increase in hash and network difficulty during the bear market of the past few months. Both of these indicators, which are key measures for calculating the profitability of miners, have repeatedly reached a new stagnation in 2023.

But do not forget that the increase in the hash rate can reflect the economic conditions a few months before. Since the development of mining facilities takes several months, the recent increase in the hash rate largely reflects the investments made in previous periods.

B Riley analyst Lucas Pipes wrote in a note to investors:

However, discussions about the development of new mining facilities in 2023 have increased. The state of investment in the industry to build new units is down compared to 2021, but has improved from the fall of 2022, when the price of Bitcoin reached its lowest level of around $15,000.

An increase in the price of Bitcoin or a sharp drop in the price of energy can increase the profitability of miners in such a way that they no longer have to shut down their activities after halving. Bloomberg Intelligence and Matrixport announced that halving has the potential to increase the price of Bitcoin by 81%.

Langlais noted:

Historically, the price of Bitcoin always rises significantly after a halving event. Of course, time will tell what will happen in this cycle.